IBC 2.0 Set to Transform Corporate Bankruptcy

India is addressing a major rebuild in its insolvency regime with the government’s approval of a group insolvency framework under the Insolvency and Bankruptcy Code (IBC). This reform is going to be the most significant one since the IBC's establishment in 2026. It will allow the financially linked companies within the same corporate group like parent firms, subsidiaries and affiliates to undergo insolvency resolution together. This move is supposed to streamline the process, reduce delays and maximize recoveries for creditors, marking a critical evolution in how India addresses complex corporate failures.

The Problem: Isolated Proceedings and Value Erosion

Until now, Indian insolvency law treated each company as a separate legal entity, even if it was part of a larger group with intertwined finances and operations. This “island” approach often led to:

• Parallel court cases for each group company
• Prolonged timelines and litigation
• Loss of value for creditors and stakeholders

A striking example is the IL&FS crisis, where over 300 group entities were entangled in separate proceedings, resulting in years of delays and significant value erosion.

The Solution: Group Insolvency Framework Explained

The new group insolvency framework will enable:

• Consolidated resolution of financially distressed companies within a corporate group
• Joint hearings and appointment of a common resolution professional
• Information-sharing protocols and synchronized timelines for all group entities

This approach promises several benefits:

• Faster resolutions by eliminating duplicative processes
• Better recoveries for lenders by preserving group synergies
• Reduced litigation and more predictable outcomes

Government Backing and Legislative Roadmap

The reform has received strong support from the Prime Minister’s Office (PMO), following months of consultations with stakeholders. A Cabinet note is ready and the legal amendments are expected to be tabled in Parliament during the upcoming monsoon session.

Alongside group insolvency, the government is also introducing:

• Creditor-led models give lenders more control over the resolution process
• Cross-border insolvency provisions to address overseas assets and creditors, aligning India with global best practices recommended by UNCITRAL (the United Nations Commission on International Trade Law)

Why Now? Learning from Experience

Officials describe these changes as a direct response to the “learning curve” of the past seven years, as Indian business structures have grown more complex and interconnected. The current system’s limitations have become increasingly apparent in sectors such as:

• Infrastructure
• Real estate
• Large conglomerates with multiple, interdependent businesses

Legal experts note that the new framework will bring India closer to international standards and help address operational challenges identified in recent discussion papers by the Insolvency and Bankruptcy Board of India (IBBI).

Key Features of the Group Insolvency Framework

The new Group Insolvency Framework marks a significant shift from the earlier fragmented approach to resolving insolvency among group companies. Under the previous regime, each company within a corporate group was treated as a separate legal entity, requiring individual resolution professionals, disjointed timelines and often resulting in value erosion due to the lack of coordination. In contrast, the new framework allows for the collective resolution of group companies, with a common resolution professional overseeing the process. Timelines are now synchronized across the group, promoting efficiency and better coordination. This unified approach helps preserve and even enhance value by leveraging operational and financial synergies. Additionally, it streamlines litigation by enabling a single, consolidated process instead of multiple, parallel proceedings. Importantly, the new regime also brings India’s insolvency framework closer to global standards, aligning more closely with the recommendations of UNCITRAL (United Nations Commission on International Trade Law).

Challenges and Legal Considerations

While the reform is widely welcomed, it raises foundational legal questions:

• Principle of Separateness: Company law traditionally treats each entity as distinct, regardless of group ties. The new framework challenges this by allowing for consolidated proceedings.
• Need for Statutory Backing: Experts argue that such a structural shift should be embedded in primary legislation, not just through regulatory tweaks, to withstand legal scrutiny and ensure effectiveness.

Market and Expert Reactions

Legal and financial experts have broadly supported the move, calling it a “game-changer” for India’s insolvency ecosystem. They highlight its potential to:

• Reduce delays and litigation
• Enhance creditor confidence
• Attract more investment in distressed assets

However, some caution that careful implementation will be needed to balance group efficiencies with the rights of individual creditors and minority stakeholders.

Next Steps: Legislative Passage and Implementation

With Cabinet approval secured, the government is expected to introduce the necessary amendments in the monsoon session of Parliament. Once enacted, detailed regulations will flesh out procedural aspects such as:

• Criteria for triggering group insolvency
• Mechanisms for creditor coordination
• Safeguards for dissenting stakeholders

Conclusion

India’s new group insolvency framework represents a bold step towards a more efficient, transparent and globally aligned bankruptcy regime. By addressing the realities of modern corporate structures, the reform promises to unlock greater value for creditors, speed up resolutions and reduce systemic risks in the financial sector. As the legislative process unfolds, the eyes of the business and legal communities will be on Parliament to deliver on this transformative vision for IBC 2.0.

The reform brings India in line with international standards, particularly those set by UNCITRAL. Countries like Singapore and the UK have already adopted group insolvency frameworks, recognizing the interconnected nature of modern business.